Analysis: A bit more than the employers wanted to pay. And a bit less than the trade unions were looking for. Such is ever the outcome of pay negotiations. The latest deal - offering 5.5 per cent - will deliver increases a bit ahead of likely inflation, writes Cliff Taylor, Economics Editor.
However the premium over the likely increase in prices is modest - and so the deal should not in itself contribute to inflationary pressures. Also, IBEC and the unions will push the Government to support the deal, particularly through committing to indexing the tax system in the next Budget, going some way to protect the value of pay increases.
The latest deal will be introduced for most private sector employees in the second half of this year - many will receive the first 1.5 per cent rise in July. The second 1.5 per cent increase will come for many next January, with a further 2.5 per cent in the middle of next year. Not all employees are directly covered - about 75 per cent of private sector employees are non-unionised. However, the norms will also be used by many other companies.
Forecasts vary, but on average it is likely that prices could increase by around 3.75 to 4 per cent over the next 18 months, meaning the 5.5 per cent rise over the period will be at least 1.5 per cent higher and possibly slightly more.
This premium over inflation would be in line with what was offered in previous deals. However, whether this will be enough to get support from union membership as they vote on the deal - particularly against a backdrop of an improving economy - remains to be seen.
Of course inflation may not work out as forecast. In particular, a sustained spike in oil prices could lead to a significantly higher outcome, eroding the real value of pay increases. Equally, a fall in oil prices could lead to a lower inflation rate.
The timing for the public service is different as they are receiving the first part of the national agreement in later phasing, due in part to the benchmarking deal.
Of more importance to most employees than the the precise relationship between wage increases and inflation is what happens to taxes and charges.
Here, the non-indexation of the tax system in the last two Budgets has eaten into pay increases by pushing more income into the tax net and making more liable to the top 42 per cent rate. A range of charges and "stealth" taxes in areas such as waste charges, motor tax and credit and charge cards has also eaten away at incomes.
The final documentation for the latest phase of the pay deal, likely to be published next week, will make clear the wish from unions and employers for the Government to support the deal in the Budgetary process. Whether there will be a specific commitment to index tax credits and bands in the Budget remains to be seen. Exchequer finances will allow some flexibility.
The final agrement will also include some other measures beneficial to employees. Maternity benefit will be increased from around 70 per cent of salary to 80 per cent. There will also be measures introduced on parental leave, childcare and employee financial involvement in profit and gain-sharing schemes. The weekly ceiling for statutory redundancy payments is also to rise by about 20 per cent.
Whether there will be tax reductions will depend on negotiations ahead of the December package, but the improvement in the exchequer finances should make a tax package possible. What of the impact on the economy? The deal should do nothing to throw the recovery off track.
Some companies - particularly in certain areas of the manufacturing sector - are facing competitive pressures and are laying off people, but many of these will struggle with or without a pay deal. Recent jobs figures showed that employment is increasing. If this continues many companies may, in fact, face pressures to pay over the odds to hold on to staff, or attract new employees.
Now, of course, the question is will the deal be ratified? An initial impression suggests that employers will probably vote for it, but the reaction of trade union members remains to be seen.